Yet, before the interpositioning cases went to trial, the SEC found interpositioning to be a violation of Rule 10b-5.
Before moving on to when fiduciary duties are created (80) and what fiduciary duties entail, (81) it is useful to set the stage by considering two practices similar to interpositioning that are outlawed: trading ahead (82) and insider trading.
Interpositioning appears to be very similar to a prohibited practice called trading ahead.
Although trading ahead has been likened to interpositioning, (99) Dial differs from the interpositioning prosecutions in that Dial solicited orders, (100) while interpositioning does not require any solicitation, since limit orders come to specialists as a matter of course.
Another analogy to interpositioning is insider trading.
Finally, it is worthwhile to consider specialist interpositioning as it affects the wider economy.
Interpositioning has been called a form of arbitrage.
With this background it will be possible to appreciate the real economic nature of interpositioning.
THE CONFLICT: THE COURTS' AND THE GOVERNMENT'S ANALYSES OF INTERPOSITIONING AND FRAUD
On the one side, the court decisions that culminated with Finnerty III (174) ruled that specialists' interpositioning was not a fraud in violation of Rule 10b-5.
183) At this point, the courts agreed that, in principle, interpositioning could be found to be a form of fraud because customers likely did not expect that their trades would not be getting the best price, when the rules of the exchanges spoke to the contrary.
The last judicial opinion on interpositioning came with the appeal of the Finnerty II decision to the Second Circuit, Finnerty 111.